Dimon's Not Anyone's Best Friend But His Own

Let me start with a little shared wisdom from Independent Senator Bernie Sanders (VT), one of the only trustworthy members in the whole Senate: “The debacle at J.P. Morgan Chase reaffirms my view that the largest six banks in this country, including J.P. Morgan Chase, which have assets equivalent to two-thirds of our GDP, must be broken up. This is important in order to bring more competition into the financial marketplace and to prevent another ‘too-big-to-fail’ bailout. At a time when 23 million Americans are either unemployed or underemployed, huge financial institutions should not be involved in ‘making wagers or high-stake bets.’ They should be investing in the productive economy creating jobs and improving our standard of living.”  

Digby's quote of the week was from the CEO of that outfit Bernie was referring to: "Just because we’re stupid doesn’t mean everybody else was." Ha ha... isn't that as funny as... Mitt Romney laughing at all his own sociopathic behavior.

I don't know about you, but this would indicate to me that the whole meritocratic belief system about the "job creators" being the smartest people on the planet who must be revered as the great sages of the age might just not be right.

In fact, it could be that they are just average, human fuck-ups who shouldn't be trusted with so much power over the world economy with no oversight or regulation. You know, for their own good as much as ours. A little communal, hive mind activity in which people with different stakes in the system all have input might just be good for everyone. Even them.

Matt Taibbi said much the same thing, about the $2 billion trading loss at JP Morgan Chase this quarter (which they blame on "errors, sloppiness and bad judgment" and others claim is their unregulated addiction to irresponsible gambling) in Rolling Stone but longer.

If you’re wondering why you should care if some idiot trader (who apparently has been making $100 million a year at Chase, a company that has been the recipient of at least $390 billion in emergency Fed loans) loses $2 billion for Jamie Dimon, here’s why: because J.P. Morgan Chase is a federally-insured depository institution that has been and will continue to be the recipient of massive amounts of public assistance. If the bank fails, someone will reach into your pocket to pay for the cleanup. So when they gamble like drunken sailors, it’s everyone’s problem.

Activity like this is exactly what the Volcker rule, which effectively banned risky proprietary trading by federally insured institutions, was designed to prevent. It will be argued that this trade was a technically a hedge, and therefore exempt from the Volcker rule. Not only does that explanation sound fishy to me (as Salmon notes, for Iksil’s trade to be a hedge, this would mean Chase had an equally giant and insane short bet on against corporate debt, which seems unlikely), but it's sort of immaterial anyway: whether or not this bet technically violated the Volcker rule, it definitely violated the spirit of the law. Hedge or no hedge, we don’t want big, federally-insured, too-big-to-fail banks making giant nuclear-powered derivatives bets.

...[T]he incident underscored the basic problem. If J.P. Morgan Chase wants to act like a crazed cowboy hedge fund and make wild exacta bets on the derivatives market, they should be welcome to do so. But they shouldn’t get to do it with cheap cash from the Fed’s discount window, and they shouldn’t get to do it with money from the federally-insured bank accounts of teachers, firemen and other such real people. It’s a simple concept: you either get to be a bank, or you get to be a casino. But you can’t be both. If we don’t have rules to enforce that concept, we ought to get some.

Willard begs to differ. He's running on a platform of repealing Dodd-Frank (and the Volcker Rule which, when it goes into effect in July, will ban banks from gambling with depositor funds in "proprietary trades") and backs deranged and destructive Republican congressional refusal to allow it to be implemented. Robert Reich, like more sensible observers, see this as yet another clarion call for resurrecting Glass-Steagall.

Word on the Street is that J.P. Morgan’s exposure is so large that it can’t dump these bad bets without affecting the market and losing even more money. And given its mammoth size and interlinked connections with every other financial institution, anything that shakes J.P. Morgan is likely to rock the rest of the Street.

Ever since the start of the banking crisis in 2008, Dimon has been arguing that more government regulation of Wall Street is unnecessary. Last year he vehemently and loudly opposed the so-called Volcker rule, itself a watered-down version of the old Glass-Steagall Act that used to separate commercial from investment banking before it was repealed in 1999, saying it would unnecessarily impinge on derivative trading (the lucrative practice of making bets on bets) and hedging (using some bets to offset the risks of other bets).

Dimon argued that the financial system could be trusted; that the near-meltdown of 2008 was a perfect storm that would never happen again.

Since then, J.P. Morgan’s lobbyists and lawyers have done everything in their power to eviscerate the Volcker rule-- creating exceptions, exemptions, and loopholes that effectively allow any big bank to go on doing most of the derivative trading it was doing before the near-meltdown.

And now-- only a few years after the banking crisis that forced American taxpayers to bail out the Street, caused home values to plunge by more than 30 percent and pushed millions of homeowners underwater, threatened or diminished the savings of millions more, and sent the entire American economy hurtling into the worst downturn since the Great Depression-- J.P. Morgan Chase recapitulates the whole debacle with the same kind of errors, sloppiness, bad judgment, excessively risky trades poorly-executed and poorly-monitored, that caused the crisis in the first place.

In light of all this, Jamie Dimon’s promise that J.P. Morgan will “fix it and move on” is not reassuring.

The losses here had been mounting for at least six weeks, according to Morgan. Where was the new transparency that’s supposed to allow regulators to catch these things before they get out of hand?

Several weeks ago there were rumors about a London-based Morgan trader making huge high-stakes bets, causing excessive volatility in derivatives markets. When asked about it then, Dimon called it “a complete tempest in a teapot.” Using the same argument he has used to fend off regulation of derivatives, he told investors that “every bank has a major portfolio” and “in those portfolios you make investments that you think are wise to offset your exposures.”

Let’s hope Morgan’s losses don’t turn into another crisis of confidence and they don’t spread to the rest of the financial sector.

But let’s also stop hoping Wall Street will mend itself. What just happened at J.P. Morgan-- along with its leader’s cavalier dismissal followed by lame reassurance-- reveals how fragile and opaque the banking system continues to be, why Glass-Steagall must be resurrected, and why the Dallas Fed’s recent recommendation that Wall Street’s giant banks be broken up should be heeded. 

Conservatives in Congress killed Glass-Steagall in 1999 with a bill Wall Street gave them millions of dollars to pass. Only 86 congressmembers voted against it. Among notable political characters in today's debate who took part in that vote:

The Bad Guys Who Were Bought Off By Wall Street

Dick Armey (teabagger-in-chief- TX)
Spencer Bachus (R-AL)
Charlie Bass (R-NH)
Shelley Berkley (New Dem-NV)
Brian Bilbray (R-CA)
Roy Blunt (R-MO)
John Boehner (R-OH)
Leonard Boswell (Blue Dog-IA)
Richard Burr (R-NC)
Saxby Chambliss (R-GA)
Jim Clyburn (D-SC)
Joseph Crowley (New Dem-NY)
Jim DeMint (R-SC)
Lindsey Graham (R-SC)
Tim Holden (Blue Dog-PA)
Steny Hoyer (D-MD)
John Kasich (R-OH)
Ron Kind (New Dem-WI)
Tom Lathan (R-IA)
Mike McIntyre (Blue Dog-NC)
Buck McKeon (R-CA)
Joe Pitts (R-PA)
Rob Portman (R-OH)
Charlie Rangel (D-NY)
Silvestre Reyes (D-TX)
Paul Ryan (R-WI)
Sherman-Berman (D-CA)
David Vitter (R-LA)

And The Good Guys

Tammy Baldwin (D-WI)
Tom Barrett (D-WI)
Sherrod Brown (D-OH)
John Conyers (D-MI)
Barney Frank (D-MA)
Dennis Kucinich (D-OH)
Barbara Lee (D-CA)
Jerry Nadler (D-NY)
Ron Paul (R-TX)
Bernie Sanders (I-VT)
Jan Schakowsky (D-IL)
Maxine Waters (D-CA)
Henry Waxman (D-CA)

Not much changes.